Is A Five-Year Mortgage Something to Get Excited About?

Of the many indicators that the economy is making a big comeback, one of the most notable is that mortgage lending has grown the most since April 2008, which was just a few months before the collapse of Lehman Brothers ignited the global financial crisis. With employment surging and secured credit getting easier to acquire at interest rates hovering near the 3 percent level, more and more Britons are looking to purchase houses.

But indicators of nationwide or global recovery do not necessarily reflect the experience of individuals struggling to get onto the property ladder. Prospective homebuyers are faced with stratospheric increases in the prices of houses. And even when a prospective buyer finds an affordable house, he or she is also likely to be confronted by a sometimes-bewildering array of mortgage choices, so it’s wise to do careful research.

For a certain subset of buyers, there is some good news, but as is the case with most good financial news, there is going to be some fine print you’ll need to read.

The five-year fixed mortgage is back, but with limitations.

Britain’s biggest bank, HSBC, has announced that it is offering its Five Year Fixed Special mortgages at 1.99 percent, the lowest rates it has ever offered. While this is certainly good news for some home buyers, the mortgages include some limitations that could give pause to many more. For example:

The mortgages require an up-front arrangement fee of £1,999.

The 1.9 percent rate is fixed only to March of 2021, at which point it may be converted to a standard variable rate (SVR), which is 3.94 percent as of this writing but will likely go up before the end of the five years.

The largest loan available is 60 percent of the property’s value, or £250,000. Therefore, a property priced higher than the £415,000 cap would be ineligible for the loan, and borrowers who lack the funds to pay the 40 percent down payment would not qualify.

Borrowers can only overpay a maximum of 10 percent of the loan per year.

Tesco Bank offers their five-year fixed mortgage at 2.19 percent, with the following stipulations:

The up-front arrangement fee is £995.

Valuation and standard legal fees are waived for remortgages.

After the five year period, the loan converts to a SVR loan, currently set at 4.24 percent.

Maximum loan size and down payment requirement are the same as offered by HSBC.

Nationwide has reduced the interest rates on their five-year fixed loans by 0.30 percent, to 4.69 percent, with an arrangement fee of £999 , or to 4.89 percent with no fee charged. In addition, the bank offers first-time buyers a £500 cashback and no-fee valuations on all their loan products.
For borrowers who are purchasing a house at or near the £415,000 cap, the cost of the HSBC Five Year Fixed Special could be slightly less expensive, while buyers of more modestly-priced houses may find their total cost slightly lower if taken out with Tesco. First-time home buyers might realize a bit of up-front cost reduction from Nationwide. As with any other financial endeavor, the borrower needs to compare the details as they apply to his or her specific situation in order to get the best deal.

After going through nearly a decade of tight or completely unavailable credit, job losses, and savings depletion, news of pretty much any easing of hardships is going to be viewed as good news, and the low rates available on these five-year fixed mortgages is no exception. Despite the improvement in virtually all aspects of our economy, however, it hasn’t yet healed completely.

Bankers, many of whom are feeling once-burned, will likely remain cautious in their lending for some time to come. At the same time, they will be aggressively marketing the products that they believe their credit-worthy customers will flock to most readily. And for the savvy borrower with a decent credit history, this can be a great time to purchase that new home, before the prices go up even more. Just make certain to read the fine print and crunch the numbers before you sign on the dotted line.

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